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Smart Contracts

The document discusses the history and concept of smart contracts, including how they work using if-then logic in a decentralized and automatic way without third parties, and provides examples of real world applications like real estate, transportation, and accommodations.

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ChrisLCampbell
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48 views2 pages

Smart Contracts

The document discusses the history and concept of smart contracts, including how they work using if-then logic in a decentralized and automatic way without third parties, and provides examples of real world applications like real estate, transportation, and accommodations.

Uploaded by

ChrisLCampbell
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Smart Contracts

Brief History?
- The term “Smart Contract” was first used in 1994 by Nick Szabo, a computer scientist
and cryptographer.
- He had the vision of using a distributed(aka decentralized) ledger to store and manage
contracts for real world use.
- Nick Szabo not only pioneered the idea of Smart Contracts, but he even predicted the
derivatives market becoming a network of computers using complex term structures,
which is basically what it is today.
- Although most of us know about smart contracts because of another name, Vitalik
Buterin, founder of Ethereum.
- As of now, Ethereum is by far the most popular general purpose smart contract platform,
This is because smart contracts are one of the sole purposes of Ethereum. The
programming language used with Ethereum, Solidity, was created FOR these smart
contracts, to make them easier to operate and efficient.
- Although there are competitors that are focusing on smart contracts, like Cardano, EOS,
and Tron.

What Are Smart Contracts?


- A smart contract is exactly what you would assume based on the name, it's a contract,
except it is “smart” in the way that it operates independently, automatically, and is
completely decentralized.
- They operate using if-then logic, making them easy to code, and seamless when
executing. IF ______ is true, THEN execute _____ terms.
- Smart contracts remove the human element from the mix, which is often the weakest
point of an operation.
- To be more specific, it is a contract with terms agreed upon by two parties, that is then
written in code, and distributed on the blockchain network. This entire blockchain
network has to verify if the smart contract will be executed or not. So a single
party(hacker, or even a group of hackers) would never be able to gain control over this
contract.
- A commonly used example to explain smart contract logic is a vending machine. There
are preset terms, like the price of the food inside. And it is constantly looking for criteria
to be met, which then it will automatically execute those preset terms. It falls perfectly
into the IF/THEN logic:
- IF the bill reader detects equal to or greater than 2 dollars
- THEN give chip bag A, and dispense change equal to the amount of money
given minus 2 dollars, the cost of the chips.
- The only issue is that the vending machine has a single point of failure. If it were to be
hacked, any terms could be set. This is where the process of decentralization comes in,
which I’ll go into more in the next section.
How Do They Work
- Three traits that make up how smart contracts work…
- Independent: First, two parties agree on terms for the smart contract, and those
terms are set in stone(or in the case, code) by creating and signing the contract.
From here it is completely independent, it does not require a third party to
manage the contract. It is then sent to the entire blockchain network that acts as
an immutable ledger for the terms of the contract...
- Automatic Execution: Once the smart contract has been placed on this
network, it will wait for it to receive information about the terms of the agreement.
When it does receive this information(from an oracle), IF the terms have been
met, it will automatically execute. Like I mentioned before, it's an IF/THEN. IF the
terms are met, THEN execute specified terms.
- Decentralized: This is the best part of the whole thing, and what makes smart
contracts so revolutionary. Decentralized in this case basically means there is no
one point of failure. If you had super secret cheat codes to a video game that
everyone was looking for, and you hid them in a vault somewhere, yes they
would be relatively secure, but if someone figures out a way to break into that
one vault, it's over, they have the cheat codes. BUT if you were to have broken
up this cheat code into 20 different segments, and put those segments into 20
different vaults around the world. Now if one of the vaults is compromised, you
have nothing to worry about, because they would still need to gain access to the
19 other vaults. This is exactly why smart contracts are reliable and trustless,
because they are doing this on a MASSIVE scale.

Recapping Benefits of Smart Contracts:


- Efficiency, no middlemen = less steps = faster completion
- Trustless, decentralized = no point of failure = very reliable/”can be trusted”
- Automated, no parties need to facilitate the contract or carry it out, it’s all automatic.

Real World Applications to Talk About:


- Real estate (Buying a house or land using a smart contract between you and the seller)
- Getting a ride (Like Uber, but without Uber’s facilitation. Using a smart contract between
you and a nearby driver. IF you take me to XYZ address, then I will pay you XYZ amount
of money)
- Finding a place to stay (Like Airbnb, but without Airbnbs facilitation. Same idea as Uber,
IF you allow me to stay at XYZ address for XYZ dates under XYZ terms, THEN I will pay
you XYZ amount of money)

Conclusion Idea:
- This concept of IF/THEN logic being carried out in a trustless and efficient fashion, with
no middle men, is revolutionary and can be applied to virtually any industry in some way
shape or form. 20 years from now these smart contracts might be the very backbone of
the internet. One day we might see these contracts automatically facilitating millions of
interactions and agreements every day.

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